Cabler couplings
Viacom, Cablevision talk link-up
That's the word from insiders, who say the talks started last month when Viacom learned that Rainbow was getting serious about taking over the programming and distribution of John Malone's Encore and Starz pay-cable channels and their six multiplexed networks.
Since Malone's Liberty Media launched Starz as a pay-TV network in 1994, the channel has created turmoil in the premium business, particularly with Showtime, which competes strenuously with leader HBO in subscriber count and in cable-operator revenues. Starz landed exclusive theatrical output deals with Universal, New Line, Miramax and Imagine Entertainment, and it outbid Showtime for the Touchstone and Hollywood Pictures movie lineups well into the next decade.
An alliance between Rainbow, one of the best cable-network marketers and packagers, and Starz, which is still losing money because of unexpected difficulty in getting cable-operator clearances outside Malone's Tele-Communications Inc., could drive the circulation of Starz.
No deal yet
A spokeswoman for Rainbow says no deal with either Showtime or Starz is imminent. The Starz talks with Rainbow, which have waxed and waned, rose to the surface in mid-1997, a natural outgrowth of two blockbuster deals last year between TCI and Cablevision:
- TCI transferred cable systems reaching almost a million subscribers to Cablevision in exchange for a 34% equity stake in the company.
- Fox/Liberty Sports, a joint venture of Liberty Media and Rupert Murdoch's News Corp., ponied up $850 million for a 40% interest in Rainbow's seven regional sports networks.
These partnerships could give Encore/Starz an inside track if it came down to Rainbow's having to choose which pay operation to take over.
But one Rainbow source points out that Starz's parent Liberty Media doesn't own a major studio whereas Showtime's Viacom parent owns Paramount Pictures.
Years of talks
For years, Rainbow has held talks with a number of major studios, offering an equity stake in AMC in exchange for guaranteed access to an inventory of theatrical movies constantly getting replenished through ongoing production. (Paramount, however, doesn't own any movie it made before 1949, having sold its library many years ago to Universal.)
One of the reasons no deals panned out is that Rainbow didn't offer enough of a variety of programming services to a major studio. But if Rainbow could get Encore/Starz into its portfolio, says Larry Gerbrandt, senior analyst for Paul Kagan Associates, a studio like Universal or Columbia would be able to market its pictures in a favorable sequential pattern.
Starz pictures
For example, Starz would get the new pictures in the paycable window one year after they complete their run in the theaters (although Columbia has a long-term exclusive paycable deal with HBO that won't expire for a number of years).
Encore would then get the movies in the first basic-cable window, which kicks in about a year and a half after the paycable exclusive. After Encore's four-year license term elapsed, the second pay window would run for about 18 months.
Then the pictures would go to what Encore calls its thematic-mulitplexed channels: Love Stories, Westerns, Mysteries, Action! and True Stories. AMC and its spinoff channel Romance Classics would be next in line. Bravo and its sibling Independent Film Channel would serve as the outlets for the indie American movies and foreign films distributed by Universal's October Films or Columbia's Sony Pictures Classics.
That's the Encore/Starz blueprint. A 50-50 joint-venture deal with Showtime Networks would allow Paramount to take advantage of the Rainbow distribution chain, with Showtime substituting for Starz, and the Movie Channel standing in for Encore. Showtime Extreme, an action-movie channel, and Flix, a minipay network, would get dibs on the pictures after The Movie Channel's window.
A Rainbow/Showtime Networks joint venture would also have to look closely at merging Independent Film Channel with Showtime's Sundance Channel, on the premise that the marketplace won't support two networks focusing on movies of such limited audience appeal.
The Big Picture strategy of companies like Showtime Networks, Rainbow and Encore/Starz is to control a full portfolio of branded networks that will be in demand as cable systems expand their channel capacity through digital technology and look for program services to fill the new slots.
